The finance ministry has exempted JP Morgan International Finance from the mandatory 26 per cent divestment clause with regard to its Indian subsidiary.
According to finance ministry officials, the company had told the government that it would infuse $50 million in its Indian operations, as committed originally. JP Morgan had set up shop in India in 1998 by investing $15 million.
The officials said JP Morgan International Finance had again approached the Foreign Investment Promotion Board recently to seek an exemption from the divestment clause.
The FIPB secretariat, which is now part of the finance ministry, decided to exempt the company in line with the progressive liberalisation in foreign investment norms. The board approved the proposal at its meeting on July 4.
In 1998, the FIPB had inserted the 26 per cent mandatory divestment clause for several global companies in the non-banking financial sector. However, the board did away with the clause in 2001. Global corporations, which set up shop in India subsequently, were not required to compulsorily offload a part of their stake.
The officials told Business Standard that companies, which took risks and entered India in the past should not be penalised, especially after the investment norms were liberalised.
The FIPB's approval is related to JP Morgan International Finance's proposed investment of Rs 174 crore (Rs 1.74 billion) in its Indian subsidiary, JP Morgan Securities India Private Ltd.
As per the original arrangement in 1998, JP Morgan was given five years to sell 26 per cent of its stake in the Indian subsidiary.
The officials said the firm had already made substantial investments through its two subsidiaries in India. Further, it has agreed to bring in an additional $35 million. Hence, the FIPB considered its proposal favourably.
Finance Minister Jaswant Singh has been liberal in clearing foreign investment proposals ever since the FIPB secretariat shifted to his ministry.
Recently, the FIPB allowed both Nokia and Motorola to undertake wholesale trading on a cash-and-carry basis. It also approved a proposal from Coca-Cola to divest 49 per cent equity through issue of shares, which did not carry voting rights.
The Cabinet Secretariat had, however, reverted the Coke proposal to the FIPB for some technical corrections. The proposal is now awaiting Singh's approval, after which it will placed before the Cabinet.